Emerging Market Crises:1998 Vs.2014

Oil prices were tanking. Emerging market currencies were in a freefall.Venezuela was mired in a financial crisis and Russia had sunk into debt default and devaluation. The year was 1998.Emerging markets today, look a lot like they did back then. Here’s a look at the similarities and differences between now and then.

SIMILARITIES

Falling Oil Prices

Crude has dropped 48% since June to about $55 a barrel, squeezing exporters from Venezuela to Russia and Nigeria.Credit default swaps show a 97% probability Venezuela will default on bonds within five years, according to data compiled by Bloomberg. The Russian economy , which is under sanctions by the US and the European Union over the Ukraine conflict, will contract as much as 4.7% next year if oil remains at $60.

Currencies Sink

A Bloomberg index tracking 20 of the most traded emerging-market currencies fell to the lowest since 2003 on December 15. The ruble tumbled past 64 per dollar for the first time, Turkey’s lira fell to an all-time low while Indonesia’s rupiah retreated to levels last seen in 1998.During the Asian financial crisis in 1997 and 1998, countries from Thailand to Malaysia capitulated on defending their currency pegs, leading the Thai baht to lose half its value in six months. Read more of this post